Japan economy surges ahead of tax hike impact

THE JAPANESE economy grew at an even faster pace than thought during the first quarter of the year, according to revised figures that show it is the fastest-growing advanced economy by some distance.

The country’s GDP rose by 1.6 per cent in the first three months of the year, up from the 1.4 per cent increase that was expected and 1.5 per cent in the first estimate. On an annualised basis, GDP grew by 6.7 per cent.

However, some analysts expect that the booming expansion will run into a wall in the second quarter.

“We estimate that real GDP will contract by over four per cent in Q2 2014 as rush demand to beat the consumption tax hike drops out. Real wages have fallen markedly amid sluggish nominal wages, the higher tax burden on households, and rising consumer prices,” said Naohiko Baba of Goldman Sachs.

The hike in GDP was particularly driven by corporate capital spending, which rose by 7.6 per cent, up from the 4.9 per cent previously suggested. Other economists said that this indicated a more reliable trend.

“With real interest rates now negative due to the low nominal interest rate and inflation, holding cash is no longer king for the corporate sector as a financial strategy. We are instead seeing a move by many corporates to increase their capital expenditure and reinvest,” said Genzo Kimura of SuMi Trust.